Engineering, Economics & Coffee

Insidious Inflation

It’s another week of data mining for me. Trying to compare two equivalent pieces of hardware for what could be a very pricey subcontracting decision. It doesn’t help the powers that be would like to limit the testing done (which of course limits the data) so that they look good to the people above them.

One place where there’s plenty of data is the US Government websites. There’s been some talk recently about the affects of TARP and the stimulus and the Fed buying up treasury bonds and pumping money into the economy and how that will affect inflation. There’s been plenty of arguments that despite all this they haven’t seen inflation really go up, and that’s the Fed’s major justification for not upping interest rates at this point. If you look at historic CPI you can see it’s been pretty flat throughout this recession.

But of course the CPI doesn’t include fuel or food or things most lower and middle class Americans purchase on a regular basis. Am I that concerned if the cost of my clothes or laptops is going up when food and petrol are my primary concerns? From my own personal data mining I’ve amassed a whopping three months of information on gas prices and you can see it’s got a very obvious upward trend. The especially troubling part of that is that typical year end gas prices tend to drop and that starting the year on a high note for oil companies probably does not bode well for the rest of us.

Whether gas is really an early indicator could be argued. And the folks that are not inflation hawks will definitely argue to the contrary. Afterall, inflation is one of the best PR machines big business could really hope for. In many ways it’s the opiate of the poor. It’s much more satisfying to think back to what your father’s hourly wage was in 1977 and think proudly you’re making more than him. But you might not be.

The graph of median household income can be misleading and much more telling when you adjust the numbers for inflation. In actuality, real median household income has increased 7.5% since 1984 after being adjusted for inflation. (The numbers might be different if you look back to the 1970s, this was just the years I picked for consistency). So how does that compare to the economy?

The GDP can be seen to plateau during the recession a little and in fact the inflation adjusted gains make it look like GDP hasn’t gained that much either. But in fact, US GDP has increased 73.9% since 1984, and that’s with inflation adjusted numbers. So when we hear about how much wages are increasing or not increasing or try to compare ourselves to previous generations and measure how far we’ve come inflation can make it look like we’re getting our fair slice of the pie when we’re really not. And that’s why I think the powers that be will not do anything to slow inflation anytime soon as it covers up the risking income inequality in this country and the gains business and industry have made on the backs of American workers.

All of these data sets were pulled from the US Census Bureau and the US Bureau of Labor Statistics. I used the US BLS inflation calculator to adjust the raw data to an inflation baseline of 1984 when my data started.